Govt anticipates hike in Petroleum Levy from July 1

Islamabad: The government of Pakistan is considering an Rs5 increase in the Petroleum Development Levy (PDL) on petrol and diesel, effective from July 1, 2023, as it pins its hopes on reaching a comprehensive agreement with the International Monetary Fund (IMF).

With the expiry of the $6.5 billion Extended Fund Facility (EFF) program on Friday, the chances of achieving the ninth review under the existing program have diminished.

As a result, Pakistan and the IMF may need to negotiate a fresh bailout package, a Standby Arrangement (SBA), worth $2.5 billion for the next six to nine months.

In order to move closer to securing the new SBA program and avoid a balance of payment crisis, the government is contemplating raising the petroleum levy from Rs50 to Rs55 per liter of petrol and diesel.

Although the IMF deal is not yet confirmed, the government plans to implement the PDL hike at the beginning of the next fiscal year.

The Ministry of Finance has already sought powers to amend the Petroleum Products (Petroleum Levy) Ordinance, 1961, to increase the petroleum levy, which previously required parliamentary approval.

The government aims to achieve a target of Rs879 billion for the next fiscal year through a petroleum development levy of Rs60 per liter, compared to the revised target of Rs542 billion for the outgoing financial year.

The timeline for receiving the Memorandum of Economic and Financial Policies (MEFP) for the fresh SBA program is still uncertain.

Without a broader agreement on the MEFP, the staff-level agreement cannot be signed.

Both Pakistan and the IMF have exchanged draft MEFP multiple times, but it remains unclear whether it pertains to the Ninth Review of the expiring EFF or the new SBA program.